For Net stocks, wild rides aren't over yet

Google's recent $130-a-share loss fits a familiar technology pattern.

The plunging share price of online giant Google is serving up a volatile reminder that the Internet revolution is still relatively young - with plenty of opportunity for investors to lose money as well as make it.

The company's stock peaked at $475 per share Jan. 11, only to dive back into the $340s this week over uncertainty about future earnings.

But Google's wild ride, while wrenching for shareholders, isn't the precursor of a new dotcom bust. The Internet is following the pattern of earlier technological revolutions: moving from early phases of boom and bust toward maturity.

Already, the landscape of Internet stocks is more stable now than in the late 1990s, analysts say. Even for Google, the youngest and priciest Internet powerhouse, the recent fall is on the order of 25 percent, hardly unusual for a fast-growing company.

"Google actually in terms of its life cycle is way ahead," says Aswath Damodaran, a finance expert at New York University. "In the late 1990s, we were buying stocks when there were no revenues. It was all expectations."

Today's Internet companies have not just revenues but profits. And after the bursting of the first Internet stock bubble in 2000, both the businesses and their investors have had a reality check.

But if it's no longer a blue-sky world for investors, the industry remains a young one. Putting a dollar value on a share of Yahoo, Amazon, or eBay is as much about guesswork as about analysis of current revenues and products.

Dr. Damodaran reckons that about 90 percent of Google's value reflects what investors hope will occur in the future, as the company expands from its position as the dominant search tool on the Web.

That helps explain the recent roller-coaster ride.

Last month, Google reported earnings gains of 81 percent over the past year, but that number fell short of forecasts. The trouble was compounded after a cover story in Barron's said the company faced stronger competition in a key area of revenue growth: sale of online advertising.

Skeptics have also raised concerns about "click fraud," the notion that the measurement of Web traffic - the driver of ad revenue for Google and others - is chronically inflated.

It hasn't helped that Google, Yahoo, and others are facing criticism for cooperating with Beijing's efforts to censor Internet use in China.

The result is a sharp reversal in sentiment. Just a few months ago, the company was viewed as poised to rule the "Googleverse," potentially devastating even giant rivals like Microsoft as it parlayed its search tools into control of traffic, advertising, and the flow of information on the Web. Now some think the stock will plunge by as much as 50 percent more, but most analysts still rate it a "buy."

Other online giants, from retailer Amazon to auctioneer eBay, face similar uncertainty as investors try to decipher their earnings reports.

Amazon reported a 43 percent decline in fourth-quarter profits recently, even as the company's revenues enjoyed their typical holiday-period surge.

But the larger story goes beyond the ups and downs of Google and its peers on Wall Street. The gyrations are all part of an online consumer revolution that continues to make new products, new mini- industries, new jobs, and productivity-enhancing technologies for the economy.

"The consumer Internet is what's driving a lot of critical technologies right now," says David Card, a technology analyst at Jupiter Research in New York.

Companies like Amazon or Google are developing technologies and business models that have not only helped them grow but have spurred efficiencies in surrounding industries.

Investors play a key role in the process, bearing the risk of big losses but also enjoying the fruits of success when companies prosper.

From Britain's industrial revolution in the late 1700s to the rise of railroads in the 1800s and last century's spread of mass production, technical change has always been a financially volatile process, experts say. Business consultant Carlota Perez has documented how such periods have been characterized by manias and busts before reaching maturity.

The information revolution appears to be following that pattern, which may mean more opportunities for Google to win big - and lose - for investors.

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